Home ownership in Canada has never really been a great investment until you consider the alternatives for accommodation and saving.

A panel hosted by the Veritas Group of Companies titled Is Home ownership Dead? passionately debated the topic last week, and the conclusions seem grim. Rightly so.

For young Canadians , confidence in housing is waning rapidly, but this doesn’t necessarily mean the end of home ownership.

“ Canadian home ownership has been like a rite of passage,” said Anthony Scilipoti, chief executive of Veritas, who moderated the event in Toronto. And while the national ownership rate peaked at 69 per cent in 2011, it has since declined to 66.5 per cent, with a sharper fall among younger Canadians. The direction seems clear.

There is no question that the trend has been driven by affordability. Rents are historically high but dropping, and owning looks like a worse option, particularly in a market that just saw a 20 per cent correction in prices.

The correction comes following a run up in prices during the pandemic that followed about two decades of price increases driven by speculation.

Daniel Foch, chief real estate officer at Valery.ca, said home ownership isn’t dead, “but it’s on track.”

Is that a bad thing? Foch doesn’t think so, noting that he is a Swiss citizen and his friends who work in finance in the country happily rent.

“They have way higher net worth than all of my friends in Canada, and that’s because they did more productive things with their capital,” Foch said.

But his example assumes Canadians are ready to become disciplined investors. Spoiler alert: most aren’t.

Forced savings, via mortgage payments, have long been the formula for Canadian wealth-building.

It’s not about outperforming the S&P/TSX composite index, which has grown about 85 per cent over the past five years. It’s about not having cash burn a hole in your pocket.

“Home ownership has done an excellent job at wealth-building because Canadians are generally good at saving money, but not good at investing,” Foch said. “I think if we can change that, we could have a much better economy.”

He’s right, but I wouldn’t bet on it. Canada is a conservative country when it comes to doing things differently.

Clearly, it is not just homeowners thinking about their properties as investments that are driving the market. John Pasalis of Realosophy Realty noted that investor-owned homes are growing at triple the pace of the overall housing stock.

“We’re basically only building non-market or social housing,” he said, adding that much of the private stock is being bought up as investment property and turned into rentals.

I’m wary of the argument that financialization of housing is the bogeyman. After all, during the United States financial crisis, nobody seemed too upset when corporate buyers swooped in to snatch up unsold homes. The anger came after those corporate buyers made it profitable.

If the tide turns here and investors absorb the excess condo inventory from cash-strapped speculators and start making money, the narrative will shift again.

The issue isn’t investor interest, it’s that too much of it has been focused on capital appreciation instead of income. That’s a bad recipe for any real estate market, especially when supply doesn’t keep up.

We need capital to build homes. We can’t fix the supply side of the market without private money stepping in. So why are we vilifying it?

Pasalis, for his part, offered this bleak prediction: “Greed is not dead. It’s just sitting on the sidelines,” warning that investors will return and outbid end users, leaving the next generation further behind.

Alex Avery, chief executive of Primaris REIT and author of The Wealthy Renter, reminded the audience that housing’s primary purpose is accommodation and not speculation.

“At some point in the last 25 years, it became a speculative asset,” he said. “That was policy-driven.”

He’s not wrong. From Canada Mortgage and Housing Corp.-backed mortgages with five per cent down payment programs to policy that lets Canadians raid their retirement savings for down payments, public policy has pushed home ownership and encouraged price appreciation along the way.

Today, we have a system that seems designed to steer people into illiquid, high-cost investments, all based on the premise that these homes will eventually fund their retirements.

But in the absence of reasonable alternatives, it will likely continue to dominate.

“The framework is broken,” Foch said. “We need to rethink it. People need to understand they can build wealth as renters.”

In theory, yes. In practice, I’m not so sure. To make that work, we first need access to better rental options. A key reason to own a home is the guarantee of tenancy.

Please find me a rental property with a backyard and suitable space for raising children. Public sentiment today is now focusing on preventing corporate entities from buying those properties, instead of building more of them for rental.

To succeed as renters, Canadians will also need stronger financial literacy. Most renters aren’t putting savings into broad-based exchange-traded funds.

Yes, just trying to cover rising living costs doesn’t leave much, but what they do save could be invested.

Home ownership persists not because it’s perfect but because it’s a model Canadians have been told works for building wealth and securing a long-term place to live.

It’s true we are seeing a long-overdue boom in purpose-built rental construction, some of it aimed at families. That’s good policy. But it’s also decades overdue.

Ron Butler, an outspoken mortgage broker, noted that while renting is common in other parts of the world, it’s typically a choice, not something forced on people priced out of ownership, like Canada.

We haven’t given renters a real choice. We’ve designed a system that rewards homeowners with leverage, tax-free capital gains and policy support. Until that changes, ownership will survive because there’s no better alternative.

Avery is right that your principal residence is a bad investment. It’s illiquid, comes with high transaction costs and starts you off in negative equity once you factor in mortgage insurance and exit fees such as land transfer taxes.

“In the public markets, (regulators) would certainly make you be an accredited investor,” Avery said, with a laugh about investing in what is a very speculative housing market.

The problem is that it is the only investment, albeit imperfect, Canadians have been willing to make and stick with.

And that’s why home ownership, for all its flaws, isn’t dead. Not even close.

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